Expected Upside Gains for Leading Metals Companies (X, NUE, STLD, NEM, ABX, SLW, FCX, SCCO, TIE, AA, MCP)

Companies focused on mining and metals have been experiencing high volatility this year based on both the overall global economy and, in some cases, expected demand, especially from China. We have looked at several steel makers and a number of precious and base metal miners, plus one rare earth minerals producers to help determine if expected upside gains are reachable given expected share target prices. The companies we looked at are United States Steel Corp. (NYSE: X), Nucor Corp. (NYSE: NUE), Steel Dynamics Inc. (NASDAQ: STLD), Newmont Mining Corp. (NYSE: NEM), Barrick Gold Corp. (NYSE: ABX), Silver Wheaton Corp. (NYSE: SLW), Freeport-McMoran Copper & Gold Inc. (NYSE: FCX), Southern Copper Corp. (NYSE: SCCO), Titanium Metals Corp. (NYSE: TIE), Alcoa Inc. (NYSE: AA), and Molycorp, Inc. (NYSE: MCP). All data from Yahoo! Finance as of the early afternoon today.

United States Steel Corp. (NYSE: X) has a median target price of $40.00 from 14 brokers. Shares are trading today at $23.52, for an implied gain of $16.48, or 41.2%. US Steel’s forward P/E is 6.46 and the company’s dividend yield is 0.90%. The stock’s 52-week trading range is $18.85-$64.03, and at today’s price that’s about 25% above its 52-week low and 63% below the 52-week high. The huge difference between US Steel’s 52-week high and its current price indicates a substantial opportunity here, if the company can get its act together. It owns its own sources of iron ore and coke, so it is relatively insulated from the higher costs faced by many other steel makers. The company should be doing better than this, but it’s a tough market out there.

Nucor Corp. (NYSE: NUE) has a median target price of $45.00 from 13 brokers. Shares traded today at $34.85, for an implied gain of $10.15, or 22.6%. Nucor’s forward P/E is 10.34 and the company’s dividend yield is 4.20%. The stock’s 52-week trading range is $29.82-$49.24, and at today’s price that’s about 17% above the 52-week low and 29% below the 52-week high. Nucor stock recently took a hit when the company lowered third-quarter EPS estimates to $0.45-$0.55 compared with analysts’ expectation of $0.64. Demand for raw materials raises costs for Nucor, at the same time that demand in the US has fallen.

Steel Dynamics Inc. (NASDAQ: STLD) has a median target price of $18.00 from 13 brokers. Shares traded today at $10.95, for an implied gain of $7.05, or 39.2%. Steel Dynamics’ forward P/E is 6.49 and the company’s dividend yield is 3.70%. The stock’s 52-week trading range is $8.78-$20.70, and at today’s price that’s about 25% above the 52-week low and 47% below the 52-week high. Like Nucor, Steel Dynamics revised EPS expectations downward last month by at least a third compared with analysts expectations.

Newmont Mining Corp. (NYSE: NEM) has a median target price of $77.00 from 16 brokers. Shares are trading today at $63.24, for an implied gain of $13.76, or 17.9%. Newmont’s forward P/E is 10.2 and the company’s dividend yield is 1.9%. The stock’s 52-week trading range is $50.05-$71.25, and at today’s price that’s about 26% above the 52-week low and 11% below the 52-week high. Newmont is the largest gold miner in the world and its dividend yield is also the highest among the miners. The company has committed to raising dividends if certain gold price targets are hit, making life even tougher for competitors.

Barrick Gold Corp. (NYSE: ABX) has a median price target of $66.50 from 20 brokers. Shares traded today at $46.93, for an implied gain of $19.57, or 29.4%. Barrick’s forward P/E is 7.67 and the company’s dividend yield is 1%. The stock’s 52-week trading range is $42.50-$55.95, and at today’s price that’s about 10% above the 52-week low and 16% below the 52-week high. Gold mining stocks have not been able to keep up with the rising price of gold mainly because the miners’ costs keep rising even as gold prices rise. Barrick is one of the lowest cost producers among the big gold mining companies, and that’s a real positive for the company.

Silver Wheaton Corp. (NYSE: SLW) has a median price target of $51.50 from 10 brokers. Shares traded today at $30.81, for an implied gain of $20.69, or 40.2%. Silver Wheaton’s forward P/E is 12.43 and the company’s dividend yield is a meager 0.40%. The stock’s 52-week trading range is $25.35-$47.60, and at today’s price that’s about 22% above the 52-week low and about 35% below the 52-week high. Silver prices have fallen by about -40% since hitting an all-time high near $50/ounce in late April and that has hit silver miners hard. Demand for silver from investors is also dropping and silver’s use in industrial applications continues to get chipped at by substitutes.

Freeport-McMoran Copper & Gold Inc. (NYSE: FCX) has a median price target of $55.00 from 16 brokers. Shares traded today at $34.78, for an implied gain of $20.22, or 36.8%. Freeport’s forward P/E is 6.31 and the company pays a dividend yield of 2.8%. The stock’s 52-week range is $28.85-$61.35, and at today’s price that’s about 21% above the 52-week low and 43% below the 52-week high. Primary demand for copper comes from the construction industry, where new pipes and new electrical wiring are a routine part of any new building. But the only place that’s been building much recently is China, and a reported oversupply of housing could put a real dent in the country’s demand for more copper.

Southern Copper Corp. (NYSE: SCCO) has a median price target of $36.75 from 14 brokers. Shares traded today at $26.86, for an implied gain of $9.89, or 26.9%. Southern’s forward P/E is 8.57 and the company’s dividend yield is a healthy 9.2%. The stock’s 52-week trading range is $22.58-$50.35, and at today’s price that’s about 19% above the 52-week low and 47% below the 52-week high. Like Freeport-McMoran, Southern depends on demand from China to keep the price of copper high. And though copper prices have rebounded about 10% from a recent low of near $3/pound, China’s copper stocks have been revealed to be higher than estimated, which is sure to put pressure on copper prices going forward.

Titanium Metals Corp. (NYSE: TIE) has a median price target of $20.00 from just 2 brokers. Shares traded today at $15.52, for an implied gain of $4.48, or 22.4%. Titanium’s forward P/E is 17.2 and the company’s dividend yield is 1.9%. The stock’s 52-week trading range is $13.28-$20.98, and at today’s price that’s about 17% above the 52-week low and about 26% below the 52-week high. Titanium Metals makes and markets titanium products. Titanium ore is near three-year highs, but still well below the $20/kilogram price of 2005.

Alcoa Inc. (NYSE: AA) has a median price target of $15.50 from 13 brokers. That number does not include any adjustments since the company announced earnings yesterday, so what follows may be of only historical interest. Alcoa’s shares traded today at $9.84, for an implied gain of $5.66, or 36.5%. The company’s forward P/E is 8.29 and its dividend yield is 1.2%. The stock’s 52-week range is $8.45-$18.47, and at today’s price that’s about 16% above the 52-week low and about 47% below the 52-week high. Alcoa’s disappointing earnings release yesterday included an expectation that demand for aluminum would grow slowly this year, led by Chinese demand growth of 10%. Given the slowdown in China’s growth, that may be wishful thinking.

Molycorp, Inc. (NYSE: MCP) has a median price target of $80.00 from 5 brokers. Shares traded today at $36.12, for an implied gain of $43.88, or nearly 55%. Molycorp’s forward P/E is 10.49 and the company does not pay a dividend. The stock’s 52-week range is $26.90-$79.16, and at today’s price that’s about 34% above the 52-week low and about 54% below the 52-week high. The euphoric response to Molycorp’s IPO in late July 2010 has given way to significant dose of reality. The company is producing revenue from existing stockpiles, but full-scale mining remains a target for next year. Demand for rare earths is still likely to be high, but prices should retreat from their nosebleed levels of recent months.

Paul Ausick